30 July 2013 0 Comments

Repeal Of DOMA Effect On Life Insurance Planning

DOMAOn June 26, 2013 the United States Supreme Court struck down the Defense of Marriage Act (DOMA).  Essentially the court stated that advantages provided to married couples of opposite sexes could not be denied to married couples of the same sex.  So, if a couple of the same sex is married in any state within the United States that recognizes their marriage they will receive all federal benefits provided to any other married couple, no matter where they may reside after the date of their marriage.

What does this mean to married couples of the same sex with regards to life insurance planning?  There are two elements that come into play: Estate Tax and Social Security Survivor Benefits.

Federal Estate Tax allows for a full marital deduction between a married couple when the surviving spouse is a citizen of the U. S.  This means that spouses may leave any amount to each other with no Estate Tax imposed.  If the federal estate tax is only imposed after a $5,000.000 exclusion this means that there would be no tax at the first death for any amount up to $10,000,000 when all assets are left to the surviving spouse.  Of course, there would be a tax when the second died and that’s why second-to-die life insurance has been such a popular way to provide for estate tax liquidity.  Now, same sex married couples may choose to use this type of policy in their planning.

In my June 11 and 14, 2013 entries I discussed the survivor benefits provided by Social Security for the survivor of a covered employee.  This not only includes retirement benefits, but income for the surviving spouse of a deceased covered worker with minor children.  Those couples who have adopted children, but are not married do not have the same benefits.  The Federal recognition of a marriage between couples of the same sex has increased survivor benefits immeasurably.

Next I’ll review the unique tax advantages of life insurance policies.

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